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The political economy of sin taxes

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  • Haavio, Markus
  • Kotakorpi, Kaisa

Abstract

We analyse the determination of taxes on harmful goods when consumers have self-control problems. We show that under reasonable assumptions, the socially optimal corrective tax exceeds the average distortion caused by self-control problems. Further, we analyse how individuals with self-control problems would vote on taxes on the consumption of harmful goods, and show that the equilibrium tax is typically below the socially optimal level. When the redistributive effects of sin taxes are taken into account, the difference between the social optimum and equilibrium is small at low levels of harm, but becomes more pronounced when consumption is more harmful.

Suggested Citation

  • Haavio, Markus & Kotakorpi, Kaisa, 2011. "The political economy of sin taxes," European Economic Review, Elsevier, vol. 55(4), pages 575-594, May.
  • Handle: RePEc:eee:eecrev:v:55:y:2011:i:4:p:575-594
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    Cited by:

    1. Hinnosaar, Marit, 2016. "Time inconsistency and alcohol sales restrictions," European Economic Review, Elsevier, vol. 87(C), pages 108-131.
    2. Philippe De Donder & Marie-Louise Leroux, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," CESifo Working Paper Series 3972, CESifo Group Munich.
    3. Adel Bosch and Steven F. Koch, 2014. "Using a Natural Experiment to Examine Tobacco Tax Regressivity," Working Papers 434, Economic Research Southern Africa.
    4. Bird,Richard M., 2015. "Tobacco and alcohol excise taxes for improving public health and revenue outcomes : marrying sin and virtue ?," Policy Research Working Paper Series 7500, The World Bank.
    5. Kyle Rozema & Nicolas Ziebarth, 2015. "Behavioral Responses to Taxation: Cigarette Taxes and Food Stamp Take-Up," Working Papers 150015, Canadian Centre for Health Economics.
    6. Markus Haavio & Kaisa Kotakorpi, 2012. "Sin Licenses Revisited," CESifo Working Paper Series 4010, CESifo Group Munich.
    7. Dubois, Pierre & Griffith, Rachel & O'Connell, Martin, 2017. "How well targeted are soda taxes?," TSE Working Papers 17-868, Toulouse School of Economics (TSE).
    8. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo Group Munich.
    9. Haavio, Markus & Kotakorpi, Kaisa, 2011. "The political economy of sin taxes," European Economic Review, Elsevier, vol. 55(4), pages 575-594, May.
    10. Pierre Pestieau & Gregory Ponthiere, 2012. "Myopia, regrets, and risky behaviors," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(2), pages 288-317, April.
    11. De Donder Philippe & Leroux Marie-Louise, 2013. "Behavioral Biases and Long-Term Care Insurance: A Political Economy Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 551-575, May.
    12. Kalamov, Zarko Y., 2016. "A Sales Tax Is Better at Promoting Healthy Diets than the Fat Tax and the Thin Subsidy," EconStor Preprints 148007, ZBW - German National Library of Economics.
    13. D. Dragone & F. Manaresi & L. Savorelli, 2013. "Obesity and smoking: can we catch two birds with one tax?," Working Papers wp873, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Haavio, Markus & Kotakorpi, Kaisa, 2016. "Sin licenses revisited," Journal of Public Economics, Elsevier, vol. 144(C), pages 40-51.
    15. Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2013. "Optimal tax rules and addictive consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 984-1000.
    16. Cremer, Helmuth & Goulão, Catarina & Roeder, Kerstin, 2016. "Earmarking and the political support of fat taxes," Journal of Health Economics, Elsevier, vol. 50(C), pages 258-267.
    17. repec:sos:sosjrn:180109 is not listed on IDEAS
    18. Luca Colombo & Umberto Galmarini, 2015. "Optimality and distortionary lobbying: regulating tobacco consumption," Working Papers 2015/2, Institut d'Economia de Barcelona (IEB).
    19. Cheng, Chu-Chuan & Chu, Hsun, 2017. "Optimal Policies for Sin Goods and Health Care: Tax or Subsidy?," MPRA Paper 80183, University Library of Munich, Germany.

    More about this item

    Keywords

    Excise taxation Voting Self-control;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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